EU Presents Russia an Ultimatum

It is an open secret that Russian-EU relations are fine from the political point of view, but the situation is rather tense in the economic field.

First of all, EU states depend on Russian gas and crude deliveries. Secondly, European countries suffer from the agricultural overproduction crisis and they cannot enter the Russian food market - it has been taken by American companies.

The recent preservation of poultry quotas (75 percent of imports) is an example that illustrates this. Finally, Russian business has recently started penetrating the economies of East European which will become EU members soon. It is impossible to stop the process because Europeans are interested in the development of the economic potential of those countries. It is not surprising that all those things have led to the pressure on Russia.

In general, the optimism of some of our high-ranking officials regarding Russia's incorporation in the WTO seems to be rather sceptical. There is a very powerful business lobby in Russia which does not allow foreign capital into the national economy. The WTO has been running a policy of blackmail during negotiations, trying to deprive Russia of all of its "natural advantages."

Last year, the discussion about the WTO membership forced President Putin to correct Russia's position. The controversy settled when the president announced that Russia would join only if it were in Russian interests. The negotiations with the WTO continued as usual. However, it has recently become known that negotiations with the WTO have been virtually stopped. EU Trade Commissioner Pascal Lamy has presented an ultimatum to Russia.

Russian Minister for Economic Development and Trade German Gref traveled to Brussels to conduct negotiations. Pascal Lamy told the Russian minister that Russia should divide the state gas monopoly Gazprom otherwise it will never become a WTO member. Previous terms and conditions have been preserved as well, although Russia has repeatedly said that they were unacceptable and discriminating.

Interfax agency reported that European officials demanded Russia should raise home prices on gas (at least up to $50 per 1,000 cubic meters), balance home and foreign gas pumping tariffs, reduce export tariffs on gas, provide freedom to transit non-Russian oil and gas via Russian pipeline systems, allow building of private oil and gas pipelines. Finally, it was said that Russia is supposed to liquidate Gazprom monopoly on the export of gas. It was a real ultimatum.

There is a powerful business lobby in Russia indeed. The lobby has similar requirements to the Russian government. Yet, the actual leader of the Russian business group, oligarch Mikhail Khodorkovsky, is not honored by the Russian authorities at the moment. In addition, despite the unjust privatization, fiscal intrigues and excessive political ambition, government officials think that Khodorkovsky intends to hand the control over the national natural resources to American transnational corporations.

State monopolies oppose this business group. The idea of private oil and gas pipelines has been buried by the administration of the company Transneft, the pipeline monopoly. Russian oligarchs have taken efforts to push the oil company Rosneft aside from the privatization of another oil company, Slavneft. The Russian gas giant Gazprom, the gas extraction and export monopoly, controls most of this market in many European countries.

Oligarchic media outlets believe that all these companies have unleashed a war against Yukos and CEO Mikhail Khodorkovsky. In addition, those companies represent the new state policy in the field of the Russian fuel and energy complex, whereas Khodorkovsky and his American friends protest against this. The point of the policy does not require a special explanation. Official presidential spokesman Dmitry Kozak clarified all the details a year ago. The point of the policy is about nationalizing the underground national wealth and turning extracting and mining companies into common subcontractors for the extraction of natural resources.

It goes without saying that Gazprom, Rosneft and Transneft become full owners of the Russian fuel and energy complex in this case. The present opposition between oil oligarchs and Russian governmental officials started after that.

High-ranking European official Pascal Lamy perfectly realized that the ultimatum requirements of the WTO could be described as an open political pressure on Russia. However, words once spoken you can never be recalled. The ultimatum has been presented. Furthermore, Gazprom head Aleksey Miller requested a delay in discussions of Gazprom's reform during a meeting of the government last week, despite German Gref's requirements. The presidential administration does not conceal that it is a taboo subject until the presidential election is over. However, it is not known if the reform of state oil and gas monopolies are going to be seriously considered after the election.

A discouraged German Gref said the requirements were purely political. The minister had to acknowledge Russia and the EU could not achieve a compromise decision. However, the government does not have the question of Gazprom reform on the agenda, at least for the rest of this year.

Taking into consideration the scandal with oil giant Yukos, international pressure and attacks against President Putin and his policy in foreign media, Gazprom has all chances to remaining a monopoly during his widely expected second presidential term. Gazprom is Russia's most important company, extremely important for the budget. In addition, the government completely controls the company in contrast to Russian private oil companies that are ready to sell out Russian natural wealth to foreigners for several billions of dollars.

After the TNK merger with British Petroleum and after the merger between YukosSibneft and ExxonMobil, foreign businessmen will have the majority of Russian oil reserves. The government cannot let the same happen to national natural gas reserves. It is well known that Russia does not have much crude, although it has the richest gas reserves in the world. The Russian government will never relent on such a natural advantage, it will never agree to give it away to private Russian or foreign capital. The control over the resources means the control over the country.

It is hard to say what will happen next after the current situation with commercial relations between Russia and Western Europe. It is not ruled out that the import of European goods to Russia will be complicated even more. Pascal Lamy was most likely aware of the fact that the requirements to Russia were unacceptable. It was like a death sentence to Russian liberal reformers.

The exacerbation of the political and economic struggle on the threshold of the presidential election, the strengthening of pressure on the Russian government on the part of the international capital, will definitely reinforce the Russian parties of power. The question of Russian membership in the WTO will most likely be dismissed afterwards. European countries will have to continue purchasing Russian gas from the gas giant Gazprom anyway. There is no other gas in Europe.